The Securities and Exchange Commission (SEC) has requested the appointment of an independent monitor to oversee GPB Capital Holdings amid allegations the New York-based asset management firm defrauded more than 17,000 retail investors in a “Ponzi-like” scheme.

In court documents filed Monday in the U.S. District Court for the Eastern District of New York, the SEC argued a monitor is “necessary and appropriate for the protection of investors.” This monitor would have carte blanche over “all non-privileged books, records, and account statements for the entities and assets” of GPB’s portfolio companies and funds. GPB would also have to make available “any officer, employee, or outside advisor that the monitor deems relevant to executing his or her duties.”

Furthermore, court documents describe how the monitor would have broad authority to approve or disapprove a wide variety of GPB’s actions, including:

  • Any proposed material corporate transactions by GPB and/or Highline Management (the firm overseeing GPB’s business affairs), the GPB funds or portfolio companies, or any other proposed material corporate transactions as deemed appropriate by the monitor;
  • Any credit extension by GPB, Highline, the GPB funds, or the portfolio companies outside the ordinary course of business;
  • Any material change in business strategy by GPB or any of the GPB funds;
  • Any material change to compensation of any executive officer, affiliate, or related party of GPB or Highline;
  • Any retention by GPB or Highline of any management-level professional or person, subject to an acceptable procedure agreed to with the monitor;
  • Any decision to resume distributions to investors in any of the GPB funds, consistent with the investment objectives of the GPB funds; and
  • Any decision to file, or cause to be filed, any bankruptcy or receivership petition for GPB, Highline, or the portfolio companies.

The SEC is requesting the appointment of Joseph Gardemal, managing director of Alvarez & Marsal, as monitor. Gardemal has over 30 years of experience in forensic accounting investigations, valuation, auditing, and financial management and is a “leading valuation and damages expert in the auto industry,” according to his bio on Alvarez & Marsal’s Website.

The request for a monitor follows an earlier complaint filed by the SEC on Feb. 4 alleging GPB; its CEO David Gentile; and Jeffrey Schneider, the owner of GPB’s placement agent Ascendant Capital and affiliated firm Ascendant Alternative Strategies, raised over $1.7 billion from investors with promises their investments would generate an 8 percent annualized distribution. GPB lied to investors that the distributions came from profits generated from their investments, instead using investor funds to pay the distribution, according to the SEC.

The firm also issued manipulated financial statements showing the funds were performing better than they actually were, a scheme that was aided by former GPB Capital Managing Partner Jeffrey Lash, the SEC added. GPB allegedly misrepresented millions of dollars in fees and other compensation paid to Gentile and Schneider. Gentile, Schneider, and Lash were all arrested on Feb. 4, the Department of Justice announced.

GPB responds

In a statement Monday in response to the government investigations and lawsuits that have been filed against it, GPB said it “has been cooperating … and is extremely disappointed by these developments. GPB denies the allegations and intends to vigorously defend itself in court where, for the first time, it will be able to present significant evidence in GPB’s favor.”

The company added, “GPB remains confident that it acted in good faith during many years of managing the GPB partnerships for investors. It is important to note that the GPB-managed partnerships themselves and any subsidiaries were not named as defendants in any of the lawsuits or in the indictment.”

The company noted it has made changes to its leadership. Gentile has stepped down as CEO, as of Feb. 5, and CFO Robert Chmiel is currently interim CEO. “Gentile is resigning from all portfolio company boards and will not have any role in managing the portfolio companies,” the company stated.

GPB further shot back at reports in the media regarding allegations it “raised $1.8 billion from investors but is now managing just $239 million. What these articles fail to articulate is that the $239 million is taken directly from our publicly available Form ADV, which is filed with the SEC. It requires that we list Regulatory Assets Under Management (rAUM), a specifically defined calculation that includes cash, tradeable securities, and certain other forms of investment, but excludes certain other types of holdings. One such holding type it excludes is ‘controlling interests in private companies,’ which accounts for the significant majority of assets held in our partnerships.”

“Regulatory AUM is in no way a reflection of the fair market value of our partnerships,” GPB said. “We will be mounting a strong defense to these unfounded allegations.”

Editor’s note: GPB Capital on Feb. 11 agreed to the appointment of an independent monitor to oversee its operations.